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Income Tax Appellate Tribunal, D BENCH, MUMBAI
Per contra, the Learned Departmental Representative supported the 7. order passed by the Assessing Officer and the CIT(A). She relied upon the judicial precedents cited by the Assessing Officer while making the disallowance. The Ld. Departmental Representative submitted that the payments made to BMC were clearly on account of infraction of law and therefore, the Assessing Officer was justified in making the additions. The Ld. Departmental Representative relied upon the judicial precedents cited by the CIT(A) in paragraph 7.3.3 of the order impugned including the decision of Hon’ble Punjab & Haryana High Court in the case of Nahar Shipping Mills Ltd. Vs. Commissioner of Income Tax, Ludhiana: [2014] 49 taxman.com 565 and the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Lokenath & Co [1984] 147 ITR 624.
In rejoinder, the Ld. Authorised Representative for the Appellant 8. submitted that the payment made in the present case was fine. Further, there was no deviation in the sanctioned plant and the constructed building. Therefore, the judgment on which reliance was placed by the Ld. Departmental Representative were not applicable to the facts of the present case.
We have considered the rival submissions, and perused the material 9. on record including the judicial precedents cited by both the sides. There is no dispute regarding the facts. The Appellant had carried out development/construction without obtaining approval from BMC. However, subsequently, the Appellant obtained approval from BMC after submitting application for regularization of construction and on (Assessment Year: 2014-15) payment of the requisite amount. The building constructed confirmed to the approval thus obtained. The Appellant claimed deduction for the amount paid to BMC which was disallowed by the Assessing Officer. The Appellant asserts that the amount paid is in the nature of ‘fine’ paid for procedural violations and is, therefore, allowable as normal business expenditure under Section 37(1) of the Act. On the other hand the Revenue contends that the same is in the nature of compounding fee/penalty for infraction of law and therefore, no allowable as deduction in terms of Explanation to Section 37(1) of the Act.
Both, the Learned Authorised Representative for Appellant and the 10. Learned Departmental Representative have relied upon judicial precedents in support of their respective contentions. Ld. Departmental Representative has relied upon the judgment of the Hon’ble Punjab High Court in the case of Nahar Shipping Mills Ltd. (supra) wherein it was held that payment of compounding fee to Municipal Corporation, Ludhiana for condoning deviation from original sanction was payment for infraction of law and therefore, not allowable under Section 37 of the Act. The Ld. Departmental Representative also placed reliance on the decision of Hon’ble Delhi High Court were after examining provisions of the applicable statute, it was held by the Hon’ble Delhi High Court that payments made to New Delhi Municipal Corporation were penal in nature and therefore, no allowable as deduction under Section 37(1) of the Act. On the other hand the Appellant has placed reliance on the decision of the Tribunal in the case of its sister concern dated 112.05.2022 passed in & 2148/Mum/2018 wherein disallowance of regularization fee paid to Thane Municipal Corporation was deleted by the Tribunal. However, there is nothing on record to show that the judgments are applicable to the facts of the present case. The 5 ITA No.1863/Mum/2022 (Assessment Year: 2014-15) development/construction in the present case as well as the amount charged by the BMC for granting post-facto approval would be governed by the provision of the applicable state laws [including Maharasthra Regional & Town Planning Act, 1966 and the corresponding Development Control Rules]. The judgments relied upon by both the sides have been rendered in the context of the relevant state legislations and regulations. There is nothing on record to show that the legislation/regulations under which Municipal Corporation, Ludhiana Bangalore Mahanagar Palika, Thane Municipal Corporation Or New Delhi Municipal Corporation function are identical to those under which BMC functions. Therefore, we are unable to apply the aforesaid judicial precedents to the facts of the present case.
We note that the Assessing Officer has, while making disallowance, has proceeded only on the basis of the fact that the Appellant had stated that the payments under consideration were made for procedural lapse without enquiry into the nature of payment. Further, the Assessing Officer has also failed to point out either the offence committed by the Appellant or the provision of law that was violated by the Appellant. The Appellant has placed reliance on the decisions in the case of Oberoi Constructions Ltd. Vs. ACIT, CC-23 (ITA No. 1010/Mum/2013, dated 04/11/2015) and in the case of Oberoi Reality Ltd. Vs. ACIT, CC-23 (ITA No. 1050/Mum/2013, dated 04/11/2015) wherein, in the identical facts and circumstances, the payments made by another assessee engaged in identical business to BMC as regularization charges were allowed by the Tribunal as deduction under Section 37(1) of the Act. Since no statutory provisions, rules or regulations have been brought cited by the Assessing Officer which show that construction without obtaining prior approval was on offence or to show that charges 6 (Assessment Year: 2014-15) paid to BMC were penal in nature, the disallowance made by the Assessing Officer cannot be sustained in view of the aforesaid decision of the Tribunal. Accordingly, Ground No.1 raised by the Appellant is allowed. While Ground No. 2 raised by the Appellant is disposed off as being infructuous.
In result, the present appeal preferred by the Assessee is allowed.
Order pronounced on 30.06.2023.